How to Analyze a Real Estate Investment – By The Numbers!

How can you analyze a real estate investment?

The three calculations most investors use are:

  1. Net Operating Income – which measures a properties ability to generate income
  2. Cap Rate – which compares that income generating ability to the price. (You can also use it to determine approximate value, but be careful!)
  3. Cash on Cash Return – which is really a projects return on investment (ROI): projected cash flows and mortgage paydown compared to the initial investment.
Net Operating Income (NOI) = Income – Expenses (Not Financing)
Cap Rate = NOI / Purchase Price  or Property Value = NOI / Benchmark Cap Rate
Cash on Cash Return = (NOI – Financing Costs) / Initial Investment

When I look at an investment potential I also like to look at:

  • Cash Flow – Just the monthly cash flow the project will generate
  • Cash Flow ROI – how that cash flow compares to the initial investment
  • 5 Year Total ROI – how the cash flow, mortgage paydown and potential market appreciation compare to the initial investment
If you are looking for an example or more information on how to use the calculations please watch the video, email me for a sample worksheet or sign up for it here:

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